Welcome to the Daily Squeeze, your go-to source for the latest in cryptocurrency – whether it’s about price fluctuations, regulatory news, or industry happenings.
For those of you just starting out in this exciting world, I understand that terms can be confusing. It’s easy to mix up Satoshi Nakamoto with a car model!
While my main focus remains on delivering timely crypto updates, I’m excited to take a break occasionally to provide a Crypto 101 series for our newcomers.
Here are some of our previous topics:
👉 Various crypto trading styles;
👉 CEX vs. DEX: What to Choose?;
👉 Hot vs. Cold Wallets Explained;
👉 Identifying Red Flags in Coins;
👉 And Understanding Decentralized Applications (dApps).
If you missed these, you can still catch up!
Now, let’s shift our focus to an important topic: What is the mechanism behind blockchain technology?
Are you ready? Let’s dive in! 👇
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Imagine a blockchain as a digital ledger that records transactions – noting who sent what, to whom, and when.
👉 In conventional systems (like banks), a single entity manages this ledger and oversees all records.
A glitch in their system or a human error could result in discrepancies or data loss.
👉 In contrast, a blockchain disperses this ledger across thousands of computers globally. Each computer, known as a node, possesses its copy of the same ledger.
If someone attempts to manipulate a transaction, the consensus among other nodes will invalidate the attempt, ensuring security.
✅ The outcome: the blockchain garners trust as it operates under collective scrutiny.
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Rather than documenting transactions individually, blockchains consolidate them into assemblies known as blocks.
Each block is comprised of:
🧾 A record of transactions – specifying who transferred Bitcoin to whom;
⏱️ A timestamp – marking the precise creation time of the block;
🔐 A cryptographic hash – which acts as a unique digital signature for that block.
As a block fills up with transactions, it connects to the previous block.
Each newly added block carries its unique signature along with the signature of the preceding block, creating a continuous chain back to the original block (referred to as the genesis block).
This continuity matters: altering even a single transaction within a previous block would modify that block’s signature, disrupting the entire chain.
Since the network holds the accurate version, any altered block would be immediately rejected.
This mechanism secures the blockchain, making it practically immutable as the data is firmly embedded in history.
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Let’s break it down further: how does your transaction get incorporated into the chain?
🛰️ Step 1: Broadcast.
Upon clicking “Send,” your wallet dispatches a message stating:
“I, [your wallet address], wish to send 1 BTC to [Alex’s wallet address].”
This includes your digital signature, confirming your authorization, and is shared across thousands of nodes in the network.
🧮 Step 2: Verification.
The network then verifies:
👉 Do you possess 1 BTC?
👉 Are you attempting to double-spend?
👉 Is your signature legitimate?
Once all checks are cleared, your transaction is deemed valid and moves to a staging area known as the mempool, which holds unconfirmed transactions.
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⛏️ Step 3: Inclusion in a block.
A miner on Proof of Work blockchains like Bitcoin or a validator on Proof of Stake platforms like Ethereum finally verifies and incorporates your transaction into a block.